Can Nvidia’s Blackwell chips propel it past Apple to become the world’s most valuable company?
$15.7 trillion. That’s how much PwC, one of the “big four” accounting firms, believes artificial intelligence (AI) could add to the global economy annually by 2030. That sort of boost doesn’t come along very often. The technology has true revolutionary potential that we probably haven’t seen since the introduction of the internet.
As the company helping drive this AI revolution like no other, Nvidia (NVDA 0.78%) has already captured a significant share of that growing market. Since the AI boom took off in late 2022, the company has added more than $3 trillion in market capitalization, currently sitting just shy of $3.4 trillion and only $190 billion or so from overtaking Apple (currently at $3.57 trillion) as the most valuable company in the world.
Can it pull ahead of the iPhone maker?
Nvidia’s Blackwell will be big
Nvidia’s dominance in its industry is due largely to its superior technology. The company’s chips are consistently faster and more efficient than what its competitors have to offer, which has led to its control of roughly 90% of the market. It means that last quarter, Nvidia’s net income from its AI chip market was roughly 25 times that of its closest competitor, Advanced Micro Devices.
Nvidia knows this advantage is fragile, and it must do everything it can to maintain its edge. To do this, it has committed to updating its chips every year (rather than every 2-3 years), which is a tall order to be sure. At present, the company’s current Hopper chips are still selling like hotcakes — Elon Musk ordered 100,000 of them not long ago to build the world’s fastest supercomputer — but Nvidia’s new Blackwell chips will begin shipping soon.
CEO Jensen Huang says demand for the new chips is “insane,” and, according to some reports, they are already sold out for the next 12 months. Nvidia is attempting to expand production, partnering with Foxconn to build the world’s largest Blackwell production facility in Mexico. Incredibly, analysts at Morgan Stanley project that Blackwell could bring in $10 billion in added revenue before this year ends. That is much higher than the company’s own guidance, so take this forecast with a grain of salt, but it’s clear that demand is very strong. We’ll see how many chips the company can actually ship.
Apple is having some growing pains
Apple is growing, especially in its services segment, and Wall Street seems relatively bullish. However, reports of less-than-stellar sales of its latest iPhone model are cause for concern. There are indications that sales may have slipped in China, a key market, and at home, the company is banking on its AI integrations — called Apple Intelligence — which require a newer iPhone to spur upgrades and boost sales. The jury is still out on whether the changes will be impressive enough for consumers to justify an upgrade.
We’ll learn a lot in the company’s upcoming earnings release later this month. Hopefully, the company has been able to improve its iPhone sales while continuing to take advantage of its service segment, which includes things like Apple TV, Apple Music, and the Apple Store.
Nvidia will pull ahead
Given Nvidia’s Blackwell roll-out and credible reports of demand echoing the demand from last year that spurred its incredible sales growth, I think Nvidia’s share price will rise faster than Apple’s, and it will take the lead position in the race for world’s largest market cap.
However, there is a wrinkle here. The valuations of the two stocks need to be factored in. Take a look at this chart showing the two companies’ price-to-earnings ratios (P/E).
NVDA PE Ratio data by YCharts
Nvidia stock trades at quite a premium, and that needs to be kept in mind. With a valuation like that, investors expect major growth. If Nvidia can’t maintain its outsized growth rate, its stock price may come back down to earth. So far, it doesn’t look like that growth will slow anytime soon, and since Nvidia is in high-growth mode, a different metric may be needed to gauge the stock’s potential.
The PEG ratio — a company’s PE divided by its expected growth rate — attempts to account for growth and is a better metric here. Conventional wisdom suggests that stocks with a PEG ratio of 1 or lower are trading at a discount. Nvidia’s PEG ratio is 1.1 while Apple’s is 2.4, suggesting Nvidia is the bargain here. If Nvidia continues growing as it has, its high PE is easily justified, and Apple will struggle to hold the No. 1 position.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, and Nvidia. The Motley Fool has a disclosure policy.
